Options Trading News

NPS Pharmaceuticals has been on a one-way trip higher, and one investor wants to stay on the train.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 2,000 October 9 calls for $1.50 and the sale of an equal number of October 12 calls for $0.25. Volume was below previous positioning in the 9s, so there are two possible explanations for the activity.

One is that both legs of the trade were opened, in which case the strategy was a bullish call spread. That would have cost $1.25 and will leverage a move between $9 and $12, with a maximum profit of 140 percent at the top of that range by expiration.

The other, more likely explanation is that the investor owns the stock and had already sold the 9s as part of a covered call strategy. He or she then bought them back and rolled the position to the higher strike. That also would have cost $1.25, and in return they have the right to earn an additional $3 on their holding in the shares.

NPSP is up 2.15 percent to $9.52 this afternoon, trading at its highes level since August 2011. The shares have climbed 25 percent in the last month as investors target small drug developers as potential takeover candidates and the market anticipates approval of the company's intestinal medicines.

Overall option volume is 13 times greater than average so far today, with calls outnumbering puts by more than 5 to 1.

optionMONSTER® provides stock market insight, advanced options education, and actionable trade ideas to meet the needs of do-it-yourself investors. After spending decades in the trading pits of Chicago, Jon 'DRJ' and Pete Najarian founded the company in 2005 to help people better manage their own investment portfolios.